Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Adeptus Health Inc (NYSE:ADPT) .
Adeptus Health Inc (NYSE:ADPT) shareholders have witnessed a decrease in support from the world’s most successful money managers recently. ADPT was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 24 hedge funds in our database with ADPT holdings at the end of the previous quarter. At the end of this article we will also compare ADPT to other stocks including Flow International Corporation (NASDAQ:FLOW), Etsy Inc (NASDAQ:ETSY), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI) to get a better sense of its popularity.
Adeptus Health Inc (ADPT) is one of the leading independent emergency room operators in the United States. It is also a battleground stock. On one hand, many top funds were long the stock at the end of September. On the other hand, over half of the company’s float is short.
Bullish investors believe ADPT has potential. Given the aging population and the lack of quality emergency facilities in the United States, ADPT bulls think the stock should trade for more than its current valuation. Before November 2, many bulls also thought ADPT had a lot of growth ahead of it given its previous history of increasing its top and bottom line.
The bears don’t believe ADPT’s earnings and growth rate will hold up. The following is an excerpt from Lakewood Capital Management‘s investor letter concerning its ADPT short at the beginning of the year:
‘We believe the room for further price increases is limited, and the company’s underlying issues will soon become apparent. Declining volumes and increasing bad debt is undoubtedly a toxic mix in a high fixed cost business, and we expect unit economics to deteriorate meaningfully this year. Given these ongoing pressures and our concerns about the durability of the business model, we do not believe the company is worth a significant premium to the capital invested in the business of approximately $150 million. Even at a valuation of two times invested capital, Adeptus shares would be worth less than $10, over 80% below current levels”.